Economies at Different Levels of Development
Trade liberalisation aims to create a level playing field on which all countries are to compete as equals, regardless of their level of economic development. But the fact is, the countries of the world are at different levels of development. Therefore, trade liberalisation impacts on them very differently.
In the past, developing countries could protect their infant industries, while developed countries provided concessions to developing countries through the General System of Preferences (GSP). Since the Uruguay Round of trade negotiations, concessions such as the GSP are denied and developing countries can no longer protect their infant industries. The reason for this is the argument that developing countries have graduated from needing assistance and should instead work on liberalising their markets as soon as possible.
While some exceptions have been made for the least developed countries, the Final Act of the Uruguay Round contains fewer loopholes than the earlier Rounds which had thereby allowed developing country governments greater flexibility and autonomy. As a result, most developing countries find that their degree of integration into world markets has substantially increased as a result of the new international trade regime.
The projected income gains from trade liberalisation are unevenly distributed between developed and developing economies. According to Trade Liberalisation: Global Economic Implications (1993), a publication of the OECD and the World Bank, over the next decade, the potential gains from trade liberalisation would be allocated as follows:
Full liberalisation would add over $450 billion to global income, of which over half would accrue to the currently most protectionist industrialized countries. Partial liberalisation, such as that envisaged in the Uruguay Round, would add over $130 billion to the incomes of OECD countries and over $80 billion to developing and formerly centrally planned economies. Whatever the degree of liberalization, all countries stand to gain in the long term even if some suffer in the short term. Poor, food-importing countries could, however, suffer short-term losses. As noted by Martin Khor of Third World Network (TWN),
Even by the Northern institutions’ own estimates there are winners and losers from the Uruguay Round. ‘Free trade’ and ‘liberalisation’ are not ‘win - win’ processes. Those that are strong enough to take advantage of the rules (or to draw them up) can derive the benefits; others may have a more balanced net outcome, whilst the weaker participants (probably the majority) may stand to lose out. The World Bank - OECD analysis of winners and losers in trade liberalisation is relevant to an analysis of its impact on different sectors of the population within a country. There will also be winners and losers within a country, as a result of trade liberalisation. Parallel to the positions of strength and weakness among the different countries, based on their degree of industrialisation and economic development, it would be the disadvantaged sectors that would suffer most from the impact of trade liberalisation. That would include women, rural communities and indigenous peoples.
With regards to new issues in trade liberalisation, the impact also falls unevenly on economies at different levels of development. These new issues include agriculture, intellectual property rights, services, and foreign investments.
Trade liberalisation is one side of a development debate that has been going on for the last 50 years. The debate is as follows: Should free markets be promoted within the context of permissive governments to allow the invisible hand of the marketplace to allocate resources efficiently and stimulate economic growth, or to have governments intervene? Or should governments "pick winners" because market failures occur to a much greater degree in developing countries than in developed countries, due to structural limitations, rigidities, or inflexibilities of the economic system?
The latter school of thought (structuralist, high development theory) prevailed during the 1950s to the 1970s while the former (neo-classical, counter-revolution) gained ascendancy in the 1980s and continued up to the time of the Asian economic crisis. (See Solita Collas-Monsod (1998) in Vivienne Wee (ed), Trade Liberalisation: Challenges and opportunities for women in Southeast Asia and beyond.
The Asian economic crisis and the impending global recession have given pause in the rush towards trade liberalisation. Indeed, market deregulation allowing for rapid capital inflows and outflows of contributed to the current crisis which has yet to bottom out.